Thu, Dec 06, 2012 - Page 14 News List

Fitch lowers global growth forecast for 2012 and 2013

QUARTERLY REPORT:The agency said the outlook globally was ‘insipid and fragile,’ with the efforts to rebalance the eurozone proving harder than expected

By Kevin Chen  /  Staff reporter

Fitch Ratings Ltd yesterday revised downward its global economic growth forecast to 2 percent for this year, from the 2.1 percent growth it estimated in July, citing the economic contraction in some European counties and Japan as well as the weaker than expected growth in emerging countries such as Brazil and India in the third quarter.

In the ratings agency’s latest quarterly report, Global Economic Outlook, Fitch also cut its growth forecast for the world economy to 2.4 percent next year, from the previous 2.6 percent forecast, and lowered the estimate to 2.9 percent for 2014, compared with 3 percent it predicted in July.

Fitch’s global forecast came after the IMF in its biannual World Economic Outlook report released in October cut its growth forecasts for the global economy to 3.3 percent for this year and 3.6 percent for next year, from 3.5 percent and 3.9 percent estimated in July respectively.

Despite headwinds slowing the macroeconomic situation, Credit Suisse Group AG yesterday forecast that global growth for next year would likely accelerate modestly to be close to its 20-year norm, at 3.4 percent, in purchasing-power parity (PPP) terms.

“We think global GDP growth will accelerate modestly from the current growth rate of slightly below 3 percent to around 3.2 percent – 3.4 percent in 2013,” a group of strategists and analysts at Credit Suisse led by Andrew Garthwaite wrote in a note.

With the economic and financial rebalancing in the eurozone proving longer and harder than anticipated despite the European Central Bank’s (ECB) bond-buying program, and the near-term growth outlook of the US economy complicated by the effect of superstorm Sandy and the looming fiscal cliff, Fitch said the global outlook was “insipid and fragile.”

“Global growth outturns are continuing to undershoot expectations and risk remain skewed to the downside,” Gergely Kiss, director of Fitch’s sovereign team, said in a statement.

Emerging markets are expected to face growing challenges amid weak import demand from advanced economies and domestic vulnerabilities, which have led to a soft patch in Brazil and India this year, the agency said.

Moreover, as China’s role in the global economy has grown rapidly over the past decade, Fitch said the global repercussions of a hypothetical hard landing of the Chinese economy would slow global growth significantly.

While saying that a hard landing in China is just a scenario and not its base case, Fitch’s report showed a hypothetical hard landing that resulted in a cumulative loss of 4 percentage points of Chinese GDP in two years would slow global growth by 1.5 percentage points.

“The biggest immediate spill-over would be on countries with the closest trade and financial links to China. In emerging Asia, Taiwan, [South] Korea and Thailand would be hit the hardest,” Fitch said.

“In Taiwan, the slowdown would be in excess of 200 basis points in 2013. Among major advanced economies, Japan would be the most affected, with an 80 basis points slowdown. Eurozone members, the US and UK would be less sensitive to a Chinese hard-landing in 2013,” it said.

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